Comparing TCP Capital (TCPC) & FS Investment (NYSE:FSIC)

TCP Capital (NASDAQ: TCPC) and FS Investment (NYSE:FSIC) are both small-cap finance companies, but which is the better business? We will contrast the two companies based on the strength of their earnings, risk, analyst recommendations, dividends, institutional ownership, valuation and profitability.

Risk & Volatility

TCP Capital has a beta of 0.68, meaning that its stock price is 32% less volatile than the S&P 500. Comparatively, FS Investment has a beta of 0.93, meaning that its stock price is 7% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and recommmendations for TCP Capital and FS Investment, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TCP Capital 0 0 5 0 3.00
FS Investment 0 2 1 0 2.33

TCP Capital presently has a consensus price target of $18.00, indicating a potential upside of 22.37%. FS Investment has a consensus price target of $9.50, indicating a potential upside of 26.67%. Given FS Investment’s higher possible upside, analysts clearly believe FS Investment is more favorable than TCP Capital.

Dividends

TCP Capital pays an annual dividend of $1.44 per share and has a dividend yield of 9.8%. FS Investment pays an annual dividend of $0.76 per share and has a dividend yield of 10.1%. TCP Capital pays out 102.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS Investment pays out 84.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TCP Capital has increased its dividend for 2 consecutive years. FS Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional and Insider Ownership

53.5% of TCP Capital shares are owned by institutional investors. Comparatively, 35.7% of FS Investment shares are owned by institutional investors. 0.6% of TCP Capital shares are owned by company insiders. Comparatively, 1.1% of FS Investment shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Valuation & Earnings

This table compares TCP Capital and FS Investment’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
TCP Capital $148.18 million 5.84 $95.36 million $1.41 10.43
FS Investment $422.81 million 4.36 $294.29 million $0.90 8.33

FS Investment has higher revenue and earnings than TCP Capital. FS Investment is trading at a lower price-to-earnings ratio than TCP Capital, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares TCP Capital and FS Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TCP Capital 49.53% 12.17% 6.82%
FS Investment 52.49% 8.97% 4.96%

Summary

TCP Capital beats FS Investment on 9 of the 17 factors compared between the two stocks.

TCP Capital Company Profile

TCP Capital Corp. is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. It invests in the debt of middle-market companies, as well as small businesses, including senior secured loans, junior loans, mezzanine debt and bonds. Its investments may include an equity component and may make equity investments directly. It intends to focus on privately negotiated investments in debt of middle-market companies. It may make investments of all kinds and at all levels of the capital structure, including in equity interests, such as preferred or common stock and warrants or options received in connection with its debt investments. As of December 31, 2016, its investment portfolio consisted of 90 portfolio companies. Tennenbaum Capital Partners, LLC is the investment manager and advisor of the Company.

FS Investment Company Profile

FS Investment Corporation is an externally managed, non-diversified, closed-end management investment company. The Company’s investment objectives are to generate current income and long-term capital appreciation. Its portfolio consists primarily of investments in senior secured loans and second lien secured loans of the private United States middle market companies and subordinated loans of the private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from target companies as primary market or directly originated investments. It invests in a range of industries, including capital goods; consumer services; consumer durables and apparel; materials; commercial and professional services, and diversified financials. Its investment advisor is FB Income Advisor, LLC.

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